Applying for a mortgage and taking it on can be very stressful as it can be a huge life changing decision for most of us. It might be labelled as a “mortgage” but in reality its debt that you need to pay off over a long period of time. It is important to think this through properly, to get professional advice and to make sure you are making the right decision.
To get you in the process and help you understand a few things we have compiled a number of questions you should ask yourself before making a final decision.
What is your budget? And how much can you afford?
This is probably the most crucial question of all, before you take on a mortgage you need to work out how much you will be able to afford to pay towards your mortgage on a monthly basis without struggling. You might be tempted to borrow a large amount of money to buy your dream home but it might not work out for you down the line. You need to evaluate your current situation and work out whether or not you will be able to afford the mortgage payments on a monthly basis. It is important to take into account other expenses such as council tax, home insurance, life insurance etc. It’s best speaking to a professional advisors or broker to get a breakdown of costs and expenses.
In most cases nowadays you are required to save up a deposit in order to buy a house. You will need a lump sum, usually 5% + of the property value in order to go ahead with it.
Generally a high deposit is better as you appear as less of a risk to the lenders and at the same time you lower you monthly payments.
So to secure a mortgage you need to have a deposit that’s at least 5% of the value of the property and for better rates you would need a larger deposit (20%+).
There are several types of mortgages that you can discuss with your lender or professional advisor, some of these include: repayment mortgages, interest only, interest only & repayment, fixed rate mortgage and variable rate mortgages.
With a repayment mortgage you pay the original amount borrower plus the interest back on a monthly basis until you eventually make all the payments and own your home.
With an interest only mortgage you only pay the interest on the total amount borrowed and therefore you don’t pay the off the original amount you borrowed.
Combination of Interest-only and Repayment Mortgages
This is a combination of the two options and you can ask your lender to see if its possible.
Fixed Rate Mortgage
If you take out a fixed rate mortgage, your monthly payments will remain the same for a fixed amount of time.
Variable Rate Mortgage
With this type of mortgage the interest rate and your monthly payments can change.